Nyhedsbrev for Mauldin – ser deflation, et muligt bearmarked – og en ny QE
Is global deflation in the near future possible? The short answer is yes, for several reasons. Commodity prices are falling all over the world and especially in dollar terms. This is a result of the high prices of the last decade, which resulted in excess supply in a world where demand growth is trending lower, especially the demand growth provided by China. Commodity prices are a key component of the prices of all manufactured goods and of food.
Wages are stagnant, and in general it is hard to see wage inflation, although my friend David Rosenberg swears he can see it coming in his charts. Given the deflationary environment we are in, an increase in wages would be a welcome event. Stagnant wages are a prescription for weak retail sales growth, thus keeping a lid on inflation.
It is very possible that we could see asset-price deflation in the near future and an accompanying bear market. A few weeks ago I discussed the possibility that the next recession will actually be led by a bear market as opposed to the bear market simply resulting from a recession. I should note that the recent bubble-like levels of subprime corporate credit and junk bonds have set up the potential for a collapse in debt valuations. Shades of 2008.
And last but not least, the rising dollar is also somewhat deflationary. A rising dollar in and of itself is not enough to create deflation, but it can help create an environment where deflation takes root.
The elements of a deflationary surprise are all in place. Given the composition and economic beliefs of the current Federal Reserve governing bodies, it is more than likely that monetary policy would become even more easy and quantitative easing would resume should we get close to 0% inflation.
